This doesn’t sound like good news.
[FDIC] is planning to beef up its staff — including temporarily hiring up to 25 retired FDIC employees who worked in the agency’s more than 200-person division that handles failed banks — to handle an anticipated increase in bank failures.
If you keep funds in some of the smaller online banks, you might want to reconsider your saving strategy. While the FDIC insures deposit accounts up to $100,000 per depositor, you might be exposed to delays when withdrawing your money if your bank disappears. Last year, NetBank failed and its accounts were absorbed by ING Direct. Individuals and companies had trouble getting money out. This could become more common in the next year or so.
To help stave off bank failure, the government is bailing out American banks. However, it is not the United States government; foreign investors are investing heavily in domestic banks through sovereign wealth funds, which basically means that banks in this country are increasingly owned by overseas governments.
Singapore recently paid $4.4 billion for an ownership stake in Merrill Lynch. The Chinese bought a $5 billion piece of Morgan Stanley… Middle Eastern and East-Asian “sovereign wealth funds” are in the process of owning a larger and larger portion of the global banking system.
The foreign governments aren’t investing enough to gain control of the companies or seats on the Board of Directors, but there is some chatter about requiring more disclosure from soverign wealth funds.
Bank profits plunge 84 percent in 4Q [AP]
Foreign investments are just bailouts [Marketplace]
Foreign investments in US banks draw scrutiny [Boston Globe]
Updated February 10, 2011 and originally published February 27, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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{ 5 comments… read them below or add one }
I heard about this! For depositors that keep more than the FDIC limits in their bank accounts, I recommend asking about surety bonds (several banks offer them for high balance customers) – or open accounts at multiple banks and keep your balances under $250,000/$100,000.
Feels like we are due a wave of consolidations and closures. Time to pay the piper. We’ve heard about the big guys, but it is Mom and Pop Bank in Podunk, CA that could be in the real trouble.
One thing to note about FDIC, is that it can take a bit of time to get paid if the other bank doesn’t get bought.
Actually from this part of the world, it looks like the sovereign funds are eagerly investing in the US banks. Perhaps bailing out may be too strong a word. (To me, I feel that a bailout may indicate an unwilling investor).
The US banks are huge and the busload of money these funds are investing does not give them a big stake or control.
A lot was said about the Saudi prince who was the biggest investor in Citibank or so. Despite this, Citibank never ever gave any impression that its largest shareholder was Saudi.
This is one great strength of the US financial sector.
I’ve pointed this out on at least one other PF blog, but this article on the Chinese government’s investments in the US is worth reading:
http://www.theatlantic.com/doc/200801/fallows-chinese-dollars
Fred: Interesting article! Thanks for sharing.